In the NYT, you’ll see the eminently reasonable and decent Tyler Cowen explain, “The New Deal Didn’t Always Work, Either.” It’s a good thing nobody’s arguing that, then, isn’t it? Here’s a few quick points.
(1) As Tyler points out, and as I say in my book, the New Deal featured some notable errors. Everyone’s favorite to hate is the National Recovery Administration, which (as Tyler puts it) “sought to cartelize industry, backed by force of law.” Even if it had functioned it would probably have ended up increasing both prices and wages, leaving no net improvement in purchasing power; in the event, it didn’t function. It was unpopular with the public and Congress, tasked with investigating itself, discredited and almost discarded by the time the Supreme Court declared it unconstitutional.1
Here’s the point to note: I’ve seen nobody argue, nor does Tyler cite anyone arguing, that, as a historical matter, NRA was the New Deal’s big success, nor that as a lesson of history, we should try NRA again.
(2) As Tyler points out, and as you’ve read here, “New Deal fiscal policy didn’t do much to promote recovery.” Just so: which is what Keynes was explaining, what Krugman argues, and what has been the understanding of the subject since E. Cary Brown’s work back in the 1950s: the lesson of New Deal fiscal policy is that Roosevelt was too conservative about its use.
When Tyler says, “we shouldn’t think that fighting a war is the way to restore economic health”—well, good thing nobody sane thinks that. The point of Michael Cembalest’s graph is not “war good” but “fiscal stimulus good”—you can have fiscal stimulus without war, and indeed fiscal stimulus is much more effective—and also morally defensible, we should note—without killing off your young and productive workers.
Here’s the point to note: I’ve seen nobody argue, nor does Tyler cite anyone arguing, either that we should repeat note-for-note the New Deal’s use of fiscal policy or that we should wage a war because it will allow less restrained fiscal policy. The point is that we should learn the lessons of New Deal fiscal policy and not be as conservative as FDR was in the 1930s.
(3) Tyler says, “The good New Deal policies, like constructing a basic social safety net, made sense on their own terms and would have been desirable in the boom years of the 1920s as well.” Absolutely right. Indeed, we can go further: they would have been desirable in the late nineteenth century, when other countries were enacting such policies, and they would have been desirable in the early twentieth century, when Theodore Roosevelt and Woodrow Wilson saw some early such measures into law over the objections of conservatives. And, as Tyler says, they would have been desirable in the 1920s. Funnily enough, the party in power in the 1920s was the non-TR version of the Republican Party, which had no interest in such policies. Inasmuch as these policies had been desirable for decades and blocked by political opposition, it was eminently sensible for the New Deal Democrats to enact them in the 1930s, because who knew when there would again be a majority in favor of them.
Here’s the point: Tyler thinks such policies are good, universal healthcare is probably one of them; it would be eminently sensible for the Obama Democrats to enact it now, because who knows when there will again be a majority in favor of it.
I’m pleased to join forces with Tyler against the wicked NRA-revivalists when they show up, and against the now actually existing opposition on the right, who would fight against these clear conclusions.
1The standard work on NRA is Hawley, The New Deal and the Problem of Monopoly, which lays out the case I’ve given here; even newer work such as the excellent Meg Jacobs, Pocketbook Politics, which emphasizes some of the useful, non-cartel aspects of NRA, acknowledges these core problems.
shadowcook made me read this.
29 comments
November 23, 2008 at 12:12 pm
Ezra
Noted scholar Jimmy Durante staunchly defended the NRA:
November 23, 2008 at 2:02 pm
Sandwichman
you can have fiscal stimulus without war, and indeed fiscal stimulus is much more effective—and also morally defensible, we should note—without killing off your young and productive workers
Even conceding that it’s a morally questionable idea to kill off your young and productive workers, the war did more than fiscal stimulus. It also withdrew from the civilian labor market, what?, 12 million or so young, productive workers? Not all of them got killed. But they were effectively out of the labor market. The lesson there is one that Stephen Leacock derived from the first world war and explained in the “Unsolved Riddle of Social Justice.” Slack labor markets: bad. Tight labor markets: good.
Republicans, monetarists, bankers, corporate CEOs and their economist enablers would like labor markets to be “just a wee bit slack” — just enough to discourage wage demands. Just a little slack is like just a little pregnant. It tends to get worse.
Keynesians should eschew such distilled frenzy from madmen in authority and hearken instead to… Keynes:
In a letter to the poet, T.S. Eliot, dated April 5, 1945, Keynes designated shorter hours of work as one of three “ingredients of a cure” for unemployment. The other two ingredients were investment and more consumption. Keynes regarded investment as “first aid,” while he called working less the “ultimate solution.” This specification of reduced work time as one of three strategic choices for maintaining employment echoes a comment in a letter written three years earlier regarding a Treasury memorandum on purchasing power and consumers’ goods in the post-war period. A more thorough and formal presentation of his view appeared in a note Keynes prepared in May 1943 on “The Long-Term Problem of Full Employment.” In that note, Keynes projected three phases of post-war economic performance. During the third phase, estimated to commence some ten to fifteen years after the end of the war, “It becomes necessary to encourage wise consumption and discourage saving, –and to absorb some part of the unwanted surplus by increased leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours.”
November 23, 2008 at 5:13 pm
John Emerson
Granted that he’s smart, to what degree should we consider Tyler Cowen an honest player? It seems to me that his Times piece, without being simply wrong, shaded the truth to the extent possible in the standard little-government direction, and refrained from explicitly saying that a lot of stimulus spending is necessary now, or that national medical insurance would be a good thing now, while making it very clear that unions are a bad thing.
November 23, 2008 at 9:13 pm
Selfreferencing
When people say “The New Deal was a good idea.” they rarely disaggregate the various policies in the New Deal. Tyler isn’t combating people who defend specific parts of the New Deal; instead, he’s responding to the general public perception that the “New Deal” (as if it were one thing) helped the economy.
I think it was pretty obvious that he was doing that and ridiculous to hold him for not citing people in a brief editorial in the New York Times. Pick a better target.
In the end, Tyler does a pretty good job at his goal – arguing that the “New Deal” didn’t help. That’s a myth worth dispelling.
November 23, 2008 at 9:40 pm
eric
he’s responding to the general public perception that the “New Deal” (as if it were one thing) helped the economy
In the context of the brouhaha that involved his co-blogger, I don’t think that’s true.
And I certainly hope that Tyler’s not arguing “that the ‘New Deal’ didn’t help.”
November 23, 2008 at 9:48 pm
andrew
The well-known liberal tv show The Simpsons has the cash register ring up “NRA4EVER” during the opening credits.
November 23, 2008 at 9:50 pm
eric
But this is almost certainly the other NRA, isn’t it?
November 23, 2008 at 9:55 pm
andrew
Yes. (That was my joke.)
November 23, 2008 at 11:08 pm
Michael Turner
Even Ben Stein is a Keynesian, it seems. Will wonders never cease? As I pointed out in a previous post, however, it’s possible to be a social conservative and (in times of ordinary growth or high inflation) even a fiscal conservative, but still an ardently Keynesian New Dealer, as the case of FDR’s Fed chairman Marriner Eccles neatly demonstrates.
Indeed, the Federal Reserve Board building in D.C., built in 1937 during Eccles’ tenure, was named for Eccles in 1982, during Paul Volcker’s chairmanship. 1982 was during a period marked by combating inflation with austerity measures. It’s a distant memory now, but farmers drove their tractors to Washington to encircle the Fed building in 1979, one of several such tractor caravans. I went through my first layoff, in 1981, with high interest rates partly to blame for drooping sales at the electronic instrumentation company that employed me back then. It was a tough time, but I’d still say Volcker administered the right medicine.
Central banking in the U.S. has a lot of tools at its disposal, for a variety of economic emergencies, and in large part because its policy toolbox was stocked by a social and fiscal conservative who nevertheless understood what Keynes was saying better than FDR himself did — maybe better than FDR ever could. Eccles was in many ways the architect of the modern Fed. I’d be mightily pleased to see this fact somehow form even a small wedge for widening yet another fracture line on the Right. The more disarray on that side, right now, the better.
November 23, 2008 at 11:17 pm
roger
Perhaps we can talk about the conditions in the twenties that caused the Crash, the twenties instead of the thirties. Funny how we have zoomed on ahead to post crash times. Galbraith, in his book, lists five factors that brought on the crash. The first one is the most important:
1. with the impressive productivity gains of the twenties, most of the profit when to the upper 5 percent, which garnered some 30 percent of the personal income. Hmm, sounds like a huge inequality program. Back then, the wealthy at least invested in new plants and projects – today, of course, the inequality problem is immeasurably worsened because this is a consumer society, and the investments were in fictional high yield products, like synthetic CDOS.
The fundamental problem back then, and now, is wealth inequality. The window dressing about monetary policy is simply a diversion from a very simple, palpable fact. You can’t make up the increase in earnings that is not delivered by the economy with credit. The reason this situation came about is that a reaganomic economy would be politically impossible without dissolving traditional credit limits for the middle and working class – otherwise, discontent at being frozen in a wage zone that is a diminishing share of the national income would lead to the overthrow of those neo-classical arrangements.
2. Rotten corporate governance and 3. rotten banking practices. That is, a government that was run by republicans turned the other way as the lessons that had been learned in the recessions and depressions 20 years before, in particular, lively and adaptive regulation, were put into suspension. It would be oh so nice to hear about how that affected the 20s, and how the crash gives us, um, a perspective on the whole affair. And of course those enterprises were too big to fail trusts – with new investment vehicles! 4. was a trade balance that was out of whack – but luckily, it was a matter of exports over imports. The problem there was weakness in other economies. Cowen should be glad that over thirty solid years of Reagonomics, we’ve solved that problem. 5. The poor state of economic thinking. Hmm, from Galbraith’s description, it sounds awfully similar to the pablum pumped out by the likes of the University of Chicago economists, libertarian thinktanks and the George Mason Economics department.
I do love the fact that after a boom which basically did not benefit the average household in the lower 80 percentile, Cowen is worrying in that article that unionization will raise their incomes. Heavens. Country club economics doesn’t get any clearer than that. The economy, for these people, is run strictly for the benefit of the wealthy.
November 23, 2008 at 11:50 pm
eric
That was my joke
And mine was trying to set you up for a different other NRA. It’s late on a Sunday, though.
November 24, 2008 at 1:02 am
Ben
Debunking right-wing myths about the New Deal is so important at this time – I hope more New Deal scholars come out swinging.
I left a comment on Paul Krugman’s blog a few days ago about the dangerously misleading impression Amity Shlaes has been giving about taxation during the Depression. She’s going around saying that Hoover raised taxes and that this contributed to the crisis. As I’m sure you know, this leaves out the fact that income taxes were very low in the early ’30s and that the bulk of the population didn’t pay them.
I’d encourage people to read a book called Sixteen-Trillion-Dollar Mistake by Bruce S Jansson. He points out that Roosevelt was constrained in what he could do by an inadequate tax base. The real problem was that Roosevelt, too, was wary of raising taxes and many people who could have comfortably afforded to pay more tax weren’t being taxed.
I’m a social democrat writing from Australia and it is so important for people worldwide that these myths are debunked – it would be great to read some op-ed pieces in the NY Times or Washington Post.
November 24, 2008 at 5:42 am
Ben
P.S. I’ve just read your link to Tyler Cohen’s piece and he makes a similar argument to Amity Shlaes. I’d make the argument that raising taxes on what would have been considered (at the time) the comfortable middle class and above would actually have had a Keynesian counter-cyclical effect. Remember, there was a much stronger culture of savings back then and people – as is happening now – were just too frightened to spend, whereas the government would actually have spent that money. And let’s not forget the multiplier effect.
And a larger tax base would have given New Dealers a kind of psychological springboard for a more ambitious spending program. But I’m really just a bit of a history buff and so I could be completely wrong.
November 24, 2008 at 6:20 am
Michael Turner
I was swayed by Cowen’s op-ed. Among other things, it made me realize this: whenever we point out that it was WW II that finally brought spending to the needed levels, we have been advocating war as a way to get out of a bad economy. We shouldn’t do that. Not just because war isn’t good for children and other living things. Not just because people get wounded, crippled, and even killed in wars. Not just because war is hell. No, it’s worse than that, far worse: as Cowen points out, war can actually result in rationing, which is government intervention in free markets.
I feel so bad now. How could I have ever fallen for this “war is good” line that you New Deal fans have been peddling? Why didn’t I see it before? You people are literally warmongers. But even that sales job is just a bait-and-switch tactic: really, you’re trying to trick us into accepting rationing, which puts us on the road to serfdom. The perfidy of it.
I’m switching sides in this debate. Watch out, ‘cuz I’m feeling really betrayed right now.
November 24, 2008 at 6:21 am
John Emerson
Krugman debunked George Will right to his face on national TV on November 16th. Within a week, Will was saying the same thing again, without Will being there. We’re not really dealing with thinkers and what they think, we’re dealing with propaganda organs. No operative or professional spokesman ever changes his message for intellectual reasons. They change their messages only when their instructions change, they’re taken off the TV only when their employers want to change the message.
November 24, 2008 at 7:28 am
silbey
We’re not really dealing with thinkers and what they think, we’re dealing with propaganda organs
Yep. This is the echo chamber in effect. Will’s role in this is not to provide honest insight, it’s to put forward a partisan message. Shlaes’ role in this is not to put forth honest insight, it’s to be the “scholarly” foundation for the partisan message. Debunking has no effect on them because the truth of what they say is irrelevant to them.
The parallel partisan message that’s been flooding the airwaves is the “America is a center-right nation.”
This is not a discussion, this is a PR campaign.
November 24, 2008 at 7:28 am
silbey
Oops. Didn’t close that html tag.
November 24, 2008 at 9:41 am
jeffbowers
While I’m not so strong on economic thought myself, I agree entirely with your statement that this is a PR campaign, an attempt to rally the lost Republicans from the wilderness with a cohesive (if not so coherent) message and to construct the oppositional narrative that will carry them through 2010 and ’12. The problem is that this reactionary stance will not take them very far, particularly if the policies of the Obama administration show some success (or at a minimum coincide with an improving economy). Unfortunately for them, in an environment where their paucity of ideas is laid bare for all to see, it may also be all they’ve got — a dim light in the darkness that never really leads them anywhere.
November 24, 2008 at 10:50 am
John Emerson
6:21: “Without Krugman being there”. Obvs.
November 24, 2008 at 10:55 am
John Emerson
Someone (Yglesias?) recently suggested that the Republican strategy will be to block everything Obama tries to do, especially the effective things he tries to do, because if Obama is tolerably successful they’ll be lost in the desert for a decade or two.
I dread to see where Lieberman oes with that. Or a few dozen other Blue Dogs.
November 24, 2008 at 10:59 am
Steve Roth
I was really amazed that Tyler didn’t even *mention* wartime deficit spending–arguably the biggest single item in ending the depression. Not even a *mention*?
Thanks for pointing it out. I did likewise:
http://trueconservative.typepad.com/trueconservative/2008/11/tyler-cowen-ignores-the-elephant.html
November 24, 2008 at 11:09 am
The New Deal « Later On
[…] Benen summarizes and explains: A few days ago, Tyler Cowen had an op-ed piece in the New York Times questioning the efficacy of FDR’s New Deal policies in addressing the Great Depression. The Heritage Foundation also […]
November 24, 2008 at 1:04 pm
AWC
George Will and Tyler Cowen on the discovery of Penicillin:
“Alexander Fleming failed to solve the bacterial infection problem; his WWI experiments with antiseptics actually killed his patients.”
After a century’s worth of routine depressions, the US economy entered a period of mind-boggling stability after 1941. Do Will and Cowen imagine that this stability is mere chance? History didn’t end in 1935. Through the policy experiments of the 1930s– even the failures– government learned a lot about dealing with depressions.
November 24, 2008 at 1:17 pm
urbino
An excellent analogy.
November 24, 2008 at 4:56 pm
Ben
To harp on taxes again, what really annoys me is that these people use the public’s limited knowledge of the past and transfer today’s world on that of the 1930s to create a misleading impression. Of all the contributing factors to the economic crisis of the ’30s, taxes would surely have to be way, way down the list. The idea that higher taxes always stifle economic growth is highly dubious at best among serious economists.
I’m surprised that no one here has tried to knock over my controversial argument that raising taxes would have had a counter-cyclical effect and led to more ambitious deficit spending.
And the names seem to be going a bit haywire – I’m under Michael Turner.
November 24, 2008 at 5:32 pm
ari
The names and comments are aligned properly, except for those people using Internet Explorer, which seems to react poorly to our blog.
November 26, 2008 at 7:21 am
Mitchell Freedman
Permit me a sociological or perhaps anthropological observation about the National Recovery Administration. The NRA seemed harsh in its some of its enforcement more likely because it had a former brigadier general, Hugh Johnson, as its top administrator. FDR jettisoned Johnson, largely because of Johnson’s personality and methods of administration, i.e., because Johnson had reactionary dictatorial tendencies. However, if we look at polling at the time, we’d find that most workers and business folks alike responded to the NRA in a very positive way in the first year of the administration, and it gave the American people great hope that we as a nation would avoid the fascism and communism that was engulfing Europe.
It is also important to recall the context of the times, and not merely the 33% unemployment and deflated and cash starving business climate. In 1931, there was a police riot and suppression of WWI soldiers who marched on Washington, DC (the so-called Bonus Marchers) and there was, at the start of the FDR administration, great fear among people throughout the land that we were heading toward a fascist or communist dictatorship. Of course, what right wingers never point out is how much admiration the polite rich folks and their elite courtiers in places like the NY Times editorial office loved Mussolini–and rooted for FDR to be more like Mussolini. Hugh Johnson was the subject of a glowing cover story in 1933 in Time Magazine, to provide another example.
The NRA tried to control too much, but remember, it did put in minimum wage rates, maximum hour limitations, and the like, which were important to help workers get money to spend, and to help incentivize businesses to hire more people. That is again why it was so popular with most people.
Amity Shlaes, with an economically right wing ideological axe to grind, is looking through the wrong end of the telescope to focus on some chicken butcher who fought the NRA administrators when the nation was facing a horribly severe economic depression. Again, the initial economic effects and the sociological effects of the NRA should not be underestimated. The NRA paved the way for the WPA, PWA and CCCs–and Eric Rauchway should not shy away from the NRA as we defend the FDR administration’s legacy.
November 26, 2008 at 7:27 am
Mitchell Freedman
One correction to my comment above: The Bonus Marchers and the government’s oppressive response occurred in 1932, the year of the election campaign between FDR and Hoover, which of course strengthens the sociological perspective I offered.
November 27, 2008 at 9:24 pm
Geoff Robinson
The right-wing response to the Depression was cartelisation and tariffs, Britain was a good example. The NRA mostly fits this pattern as does Smoot-Hawley from the Republicans. As the New Deal moved to the left it moved away from cartelisation. Perhaps you could argue that if prices and profts were stablised by cartelisation then businesses would be willing invest more (does Peter Temin suggest this possibility somewhere?)